Econometric analyses of horticultural production and marketing in Central and Eastern Ethiopia Promotor: Prof. dr. ir. A.J. Oskam Hoogleraar Agrarische Economie en Plattelandsbeleid Wageningen Universiteit Co-promotoren: Dr. ir. C. Gardebroek Universitair Docent Leerstoelgroep Agrarische Economie en Plattelandsbeleid Wageningen Universiteit Dr. Tassew Woldehanna Assistant Professor at Department of Economics, Addis Ababa University, Ethiopia. Promotiecommissie: Prof. dr. ir. E.H. Bulte, Wageningen Universiteit Prof. dr. K. Karantininis, University of Copenhagen, Denmark Prof. dr. R. Ruben, Radboud Universiteit Nijmegen Dr. A. van Tilburg, Wageningen Universiteit Dit onderzoek is uitgevoerd binnen de onderzoeksschool Mansholt Graduate School of Social Sciences Moti Jaleta Debello Econometric analyses of horticultural production and marketing in Central and Eastern Ethiopia Proefschrift ter verkrijging van de graad van doctor op gezag van de rector magnificus van Wageningen Universiteit Prof. dr. M.J. Kropff in het openbaar te verdedigen op maandag 12 februari 2007 des namiddags te 13:30 uur in de Aula . Econometric analyses of horticultural production and marketing in Central and Eastern Ethiopia. PhD Thesis Wageningen University. -With ref. – With summaries in English and Dutch Moti Jaleta Debello, 2007 ISBN: 90-8504-537-1 Key words: vegetables, food and cash crops, land and labour allocations, crop and market outlet choice, price information, farm households, Ethiopia. To my grandma, Warqitu Fufa (circa 1910-2003) ABSTRACT The central item of this research is to examine the development of less-favoured areas through commercializing small-scale agriculture that produces crops with export potential, particularly in horticulture. First, the role of horticulture, along with other non-traditional agricultural commodities, in stabilizing the export income of Ethiopia is analyzed using a portfolio approach. Next, farm household land and labour allocation decisions to cash and food crop production are investigated using household survey data collected from Central and Eastern Ethiopia. Using the same survey data, crop and market outlet choice interactions at household level are analyzed to examine the impact of institutional arrangements on agricultural commercialization. Finally, farmers’ bargaining power on tomatoes transacted at farm-gate under asymmetric price information is examined. The study shows that horticultural products may stabilize export income at the macro-economic level and therefore it is worthwhile to explore the possibilities for growth of this sector. At household level, farm capital and motor pump ownership are the major elements, among others, influencing land and labour allocation decisions to cash crop production. For some cash crops, there is interdependence between the share of land allocated to a given crop and the share of the specific crop harvest sold at a farm-gate implying that institutional arrangements influence household crop choices and the level of commercialization. Results from the bargaining power analysis show that well informed farmers are more committed to their initial ask prices than other farmers during tomato price negotiations at a farm-gate. This implies that market price information enhances farmers’ bargaining power on prices. In general, institutional arrangements that enhance small-scale farmers’ working capital, secure the existence of market outlets for vegetables and provide price information are needed to influence farm household land and labour allocation decisions towards cash crop production. The findings of this thesis help to understand the process of moving towards commercialized small-scale agriculture to bring rural development and better welfare to the rural poor and particularly for those living in less-favoured areas. Key words: vegetables, food and cash crops, land and labour allocations, crop and market outlet choice, price information, farm households, Ethiopia. i ACKNOWLEDGEMENT There are many individuals and institutions who contributed towards finalizing my PhD study and writing this thesis. Without their support, it would not be in this format this time. If I forgot to mention someone, it is not intentional and I am of course grateful to you all. My warmest gratitude goes to my promoter Prof. Arie Oskam for accepting me as a PhD student and giving me critical comments starting from the draft research proposal till the final thesis script. Second, I would like to thank my co-promoter and daily supervisor Dr. ir. (Koos) Cornelis Gardebroek. Thank you Koos for keeping your office open any time I needed your help, for giving me critical and constructive comments on all of the chapters in this work, and for translating the summary of this thesis into Dutch. I also benefited from my co-promoter Dr. Tassew Woldehanna’s comments on the research proposal, questionnaire development and during the final work on my thesis. Thank you Tassew a lot. I would also like to thank Dr. ir. Rien Komen with whom I started to work my PhD and who contributed a lot in giving a good direction to my research and later shifted to another job in the same University. Thanks Rien for allowing me to have the freedom of choosing my research areas. All Agricultural Economics and Rural Policy Group members deserve thanks for giving me their constructive comments during group presentations and for the good working atmosphere. Thanks to Dineke and Karen for organizing my travels and other administrative things, Wilbert for computer assistances, Henny, Ineke and Ingrid for your cooperation related to my PhD research project. Difficult to choose where to start but my deepest gratitude goes to my Dutch contact family living in Bennekom: Rini and Gerrit Breman along with their family members (Bas, Anna, Machteld, Michel, and Benjamin). Your concern and care about myself and my family remains with me. Rini and Gerrit, our discussions on philosophy and principles of life had a lot of impact on how I should look at this world and myself in the world. A lot of thanks for inviting my wife and daughter for a three months stay in the Netherlands and hosting three of us at your house. Thanks for inviting me to live with you and hosting me for more than nineteen months at your home. That is very special of you. God bless you! I would also like to thank Mirjam Oskam (with Arie) for the special Sunday morning breakfasts you have been organizing for international PhD students. It was a great opportunity for us to socialize with our professor outside the academic world, share experiences with each other and enjoy the long breakfast, brunch . Obboleewwan maatii koof gargaarsa gochaa turtan, Amanuu, Waaqtolee, Dambalaa, Amsaaluu, Garbaa, Dr. Addunyaa, Obbo Gabayyoo Tarfaa fi maatii isaanii, Isheetuu, Tigist, Faxxanaa, Xiyyee, Fayyoo, Katamaa, fi bilbilaan humna anaaf kennitan, Mulunaa, Tafarraa, Diroo, Dhugaasaa, Misgaanuu, Bayyanaa, Dachaasaa fi kanneen biroon hundi keessan hedduu galatooma, Waaqayyo isin haa eebbisu. I would like to acknowledge enumerators who helped me in data collection and farmers both around Haro-Maya and Ziway, who devoted their time in giving answers to the survey questionnaire. I am grateful to Ato Fituwi Tedla and Ato Neway, who are employees of the Ethiopian Horticultural Development Enterprise at Addis Ababa, for their valuable support in recording the daily tomato wholesale price data at the central iii vegetable market and for their valuable discussions on the current status of horticultural marketing in the country. Thanks to the Ethiopian Customs Authority and Ethiopian Export Promotion Agency for providing export data for this study. I am also thankful to my parents, Chaltu Tufa and Jaleta Debello, for sending me to school and keeping me there with great encouragement. I see this academic achievement as a great success to you as well. My sincere thanks go to Shibire (my wife) for your understanding, encouragement and bearing the family responsibilities throughout my study and particularly while I was abroad. Thanks Jalane (my daughter), Roba and Robera (my twin sons) for your understanding and patience when I was away from home. With God’s help, this is a turning point to be with you and build up our family life. Finally, thanks to the Almighty God for making possible the once ‘impossible’ dream I had in mind some thirteen years ago. When all the possible gates seem closed, all these academic achievements in such a short time were not more than a dream if not an illusion at all. Thanks God for giving me the endurance, determination and guidance throughout the valleys and mountains of life. With your light, I saw my way! November 2006, Wageningen iv TABLE OF CONTENTS ABSTRACT i ACKNOWLEDGEMENT iii LIST OF TABLES viii LIST OF FIGURES ix CHAPTER 1 INTRODUCTION 1 1.1 Background 1 1.2 Problem statement 3 1.3 Objective of the thesis 4 1.4 Methodological approach and data 5 1.5 Thesis outline 6 CHAPTER 2 DESCRIPTION OF THE STUDY AREA AND SURVEY DATA 7 2.1 Introduction 7 2.2 Description of the study area 7 2.3 Institutional arrangements 9 2.4 Survey data description 12 CHAPTER 3 THE ROLE OF NON-TRADITIONAL AGRICULTURAL COMMODITY EXPORTS IN ATTAINING EXPORT EARNINGS STABILITY 15 3.1 Introduction 15 3.2 The performance of Ethiopia’s export sector 16 3.3 Data and analysis 19 3.4 Results of empirical analysis 22 3.5 Discussion and conclusions 26 v CHAPTER 4 LAND AND LABOUR ALLOCATION DECISIONS IN THE SHIFT FROM SUBSISTENCE TO COMMERCIAL AGRICULTURE 27 4.1 Introduction 27 4.2 The basic